The trend is your friend and while I expected a news to slow we got an unanticipated surprise. Positive news continues to hit the sector and the trend continues higher. I will never call the end of the trend until it confirmed but we have had a great move and macro has been pretty supportive as well. The inclination is to chase given the strength of the move but I would be a little more cautious. I suspect that macro will become less supportive at some point (as it always does). Reports are that North Korea is looking to dramatically increase military provocations in the next 3 or so months (keep in mind they gave the US an end of the year deadline to make a deal). In addition, Netanyahu has been indicted, which adds some more uncertainty in the Middle East. To be clear I am not bearish but just a note of caution as it is easy to start chasing on runs this strong.
1. GBT gave us a surprise (well, it was really the FDA that provided the surprise) with a very early approval of Oxbryta. While I thought the drug would be approved, I expected a panel and an approval closer to the PDUFA. I do not think I was much off consensus with that view so this is a positive surprise and might lead to a post approval move higher as opposed to the frequent sell the news. So what to do now with GBT?
2. Part of the concern going forward will be the commercial potential especially with the NVS recent approval. This is compounded given the interest and focus on SCD drugs effecting VOC, where NVS has a dramatic effect on VOC and GBT does not. In other words, GBT likely has a more difficult sales pitch as opposed to NVS. I think GBT will sell well over the longer term but will it launch strong? That is something that I am not sure about (especially because I think the NVS drug will launch strong).
3. As such, I am not that excited about holding into the first couple quarter of launches but we also have JPM coming soon. GBT will likely become a speculated take out candidate (as well it should be) and so could have a run up into JPM. All that being said I would lean towards taking the profits now and wait to see that launch metrics but I have not quite made a solid decision yet.
4. If I sell GBT, the question is what to move onto next. The move in the sector has not create any really cheap companies, so I will remain cautious. I am looking at two companies that could be interesting: KPTI and STML. These are two companies that I was bullish on approval but less bullish on the commercial potential. Both companies are doing better commercially than I would have thought. STML is particularly interesting right now as it is cheaper and launch expectations were lower. In addition, it is presenting at ASH on a potential expanded indication. I still want to do more work on these names but these are the sort of under/off the radar names that are likely going to be the better opportunities in the near term.
I will end it here and will be off for the Thanksgiving holiday. I hope everyone has a good holiday and be back next Monday.
Disclosure: long GBT
